Interview with Joe Berchtold on Digital Cinema by Technicolor

TechnicolorSince its inception as catalyst for cinema's transformation from black and white to color, Technicolor's history now spans ninety years in the motion picture industry. Even as parent, Thomson, leverages the rainbow's magic brand to advance its digital cinema venture, Technicolor still processes over five billion feet of motion picture film a year. DreamWorks, Sony Pictures, Universal Pictures, Warner Brothers, and Twentieth Century Fox have all signed agreements to use digital projection systems from Technicolor Digital Cinema on five thousand screens in the United States and Canada; and under the terms of a strategic understanding with Century Theatres, Technicolor will begin to install digital projection equipment with a beta-test deployment of ninety to hundred-and-twenty screens, in the first quarter of 2006. With an initial rollout plan for complete digital projection systems on up to five thousand DCI-compliant screens over the next three to four years, Thomson intends to deploy at least fifteen-thousand digitally-equipped screens in the United States and Canada over the next ten years. As president of Technicolor Electronic Distribution Services, Joe Berchtold is responsible for the strategic development, growth, and operations of the Thomson Services division worldwide, including all aspects of Technicolor's digital cinema initiatives, on-demand content, and IPTV distribution services. Since joining Thomson in 2003, Berchtold has been co-head of strategy and acquisitions, leading key initiatives that include the acquisition of DirecTV's set-top box business; the company's investment in Content Guard with Time Warner and Microsoft, where he now sits on the board of directors; and the forging of an agreement with VeriSign to jointly develop an online content authentication and authorization service bureau to support secure delivery of electronic entertainment content over digital networks.
Alexa O'Brien
Do you think digital cinema will reverse the declining box office trend?

joe-berchtold
Joe Berchtold
Well, I think that the hope of that is what has driven a lot of the energy behind digital cinema over the past year. I think people have come to realize that the savings from digital cinema on the cost side are some ways out, and the real opportunity here is the top line. It's getting customers back. If you think about a movie theater as a retail business, it's among the most constrained retail businesses you can imagine from a merchandising standpoint; because as a physical reel of film is tied to a physical room, there's just no flexibility. Digital inherently creates a lot more flexibility. People are talking about some of the things. You can add more screens. You can move screens. All of which will help on the margin. But, we also think, and I'm not creative enough, but we also think that five years from now, what are some of the most creative people in the world going to have figured out to be able to take advantage of this technology?
Alexa O'Brien
Do you think digital cinema will change theatrical content?
Joe Berchtold
I do, and again, I am not creative enough to know how. I think that more things will be tested and fail, than will be tested and work, but things are going to be tested. 3D is a great example. 3D in digital is much better than 3D in film. I am not a technology guy, but the technology in digital doesn't create the headaches that you have in 35 mm, because your mind doesn't have to adjust for imperfections in the speed of the film between the two projectors; because it's all digital. So, look at Chicken Little. Chicken Little did two and half times the box office per screen in 3D versus what it did in 2D. Is that every film? No. Is that some films? Of course. So, there is going to be a whole portfolio of things that incredibly creative people are going to be out there trying. You need a few to work every year. You add to the portfolio what has already worked and the next thing you know the 10% decline has turned around to a 10% growth. That has a huge impact on the business.
Alexa O'Brien
The box office has dealt with competition before: the advent of TV in the 1950s, et cetera; and presumably the numbers had to crunch when you planned this rollout, or else why would you do it, right? So, how do you think multi-deliverables and other entertainment systems, like video games or home theaters, will affect digital cinema?
Joe Berchtold
It will continue to push the theaters to get more creative. So, there will always be that back and forth. The theaters will come up with something, and TV will get better. Then the theaters will come up with more. Which way it goes on a year to year basis, who knows? It's up to the theatrical community, both the exhibitors as well as the people who create the movies, to continue to renew, to come up with things that keeps the experience better. Again, I don't think there's a silver bullet. I don't think you can know that every single thing that you try is going to work. You have got to get out there. You have to try a lot of things, and figure out what resonates with consumers. You have to continually innovate, because your competition, which is the TV at home and video games and everything else continues to innovate. So you have to do the same. The benefit is that there are no more creative people in the world, than the ones who have to deal with that problem.
Alexa O'Brien
How would you differentiate Technicolor's rollout from Access IT's?
Joe Berchtold
I think that we have approached the rollout fundamentally as this being an industry in transition. I can't speak for them. I will let you draw your comparisons. I will talk about what we do. We have approached this from the fact that digital cinema is the transition of an industry's technology. It's a fundamental shift. If you look back over the last ninety years, film has worked fine. The hope is that digital is going to represent the next ninety years. Therefore, it needs to be done with the care and understanding that this is about a transition. This is about the box office. This is not about making a quick buck. It's not about doing a quick deal. It's about figuring out for the industry how to very effectively make this transition work, in a way that works for everybody: big studios, small studios, big exhibitors, small exhibitors. We have worked very hard in the first instance to come up with a universal plan. Which is why it was important for us, when we announced our deals, that it included small players like The Weinstein, and New Line, and DreamWorks, and not just the big studios. The second is that as a result of all that, our approach is to say, while we are doing it with all due progress, it is more important to do it right, than it is to do it fast. You don't want to find out on a Thursday that the file, that you just received, does not work on the server you have. So, we are making a substantial investment, in the first instance, to have a test facility, to test how all the equipment and all the projectors work together; and in the second instance, in doing a beta test. I bluntly think it's gambling with the exhibitor's livelihood to just go rollout equipment that isn't DCI-compliant and hasn't been tested to know that it's going to work. I mean when was the last time you were at a movie on a Friday or Saturday night, and ten minutes into it, it stopped and they said, "Well the movie has broken down and you are going to have to go home?" It's never happened to me. On the other hand, when was last time you had to reboot your PC? That's not to say, it is going to be that experience, but we better make sure it's not. We better make sure it's not by testing it and testing it; and being reasonably careful. I have gotten accused by some of being overly deliberate and of being an old maid; but my response is, "I am not playing here with whether or not I get a thousand buck virtual print fee. I am playing with whether or not the studio gets five thousand dollars of box office, and five thousand dollars on the next movie." When I do the math on the timing of the rollout, I don't do it based just on my economics, and whether or not I get paid, and whether or not I gotta give the money back. I do it from the viewpoint of what's the impact on the exhibitor and what's the impact on the studio; because Technicolor has been around ninety years, and we are going to be around another ninety years; and I am not going to play games with their livelihood. I just don't think it's responsible.
Alexa O'Brien
Your approach is the farmer's, not the hunter-gatherer's?
Joe Berchtold
Yeah.
Alexa O'Brien
You're cultivating a grove that will harvest a long-term crop, not just going for the one-time kill?
Joe Berchtold
Right.
Alexa O'Brien
I read in one of your press releases that "digital end to end cryptographic encryption will make piracy financially unrewarding, thereby helping studios to dramatically undercut the multi-billion piracy market in existence today." Can you tell me how?
Joe Berchtold
Well, what is going to happen with digital cinema is two things. One is that every movie that gets shown will have a date-time-location stamp on it. So if you can now source back to the fact that movies that are getting pirated, tend to get pirated out of this complex, the studios are then going to be able to work with the exhibitor and figure out how and why. The second thing is that there is an audio watermark which is put in, and there are discussions underway with the consumer electronics manufacturers to agree to respect that audio watermark, such that if somebody makes a camcorder version of it, and it hears the beeps on the audio track, that it stops playing the movie. So those are the two factors that watermarking really has as an impact on the applicancy of piracy.
Alexa O'Brien
In a November 2005 Lehman Brothers Equity Research Report projecting Eastman Kodak market share for print stock in the face of both Access IT and Technicolor digital cinema rollouts, analysts Sabbagha and Talbott maintain that the speed of a Technicolor rollout depends on the securement of financing for the equipment installed in theaters. Is financing for the larger Technicolor rollout contingent on the success of the beta test?
Joe Berchtold
Not to be flippant, but I think it's irrelevant. If the beta test is not successful, we are not rolling out, no matter whose money it is.
Alexa O'Brien
(laughs) O.K. Understood.
Joe Berchtold
(laughs) Not to be flip. When we made our announcement, and we made it just before the holidays. We had twenty banks calling us and saying that they wanted to finance us. This is not about financing. Money is fungible. I mean you walk out your door there's people... I mean how many credit cards and mortgage things...? There is more bloody money in our system to loan to people who have good credit, whether it's consumers or businesses. This is a mistake that has been made for a long time about digital cinema. It gets characterized as being about buying equipment, buying a projector and a server and financing them and sticking them in. That's not what it is about. That's easy. You'd see private equity firms doing it. You would see everybody and their brother doing it. What this is about, is that once this thing is installed, for the next ten years we have got to make sure that equipment is working. We have got to make sure that the content is not being pirated by people opening it up and attaching wires to it. This is an operating business that we are going into, and the financing piece, peel that off. That's a commodity. What the studios are really saying when they sign this deal with us is that they trust for the next ten years, we are going to do our part to make sure that the content shows up on the screen and is safeguarded. The exhibitor is saying the same thing when they sign up with us.
Alexa O'Brien
I really appreciate your time today.
Joe Berchtold
My pleasure.
Alexa O'Brien Alexa O'Brien researches and writes about national security. Her work has been published in VICE News, The Cairo Review of Global Affairs, Guardian UK, Salon, The Daily Beast, and featured on the BBC, PBS Frontline, On The Media, Democracy Now!, and Public Radio International. In 2013, she was shortlisted for the Martha Gellhorn Prize for Journalism in the UK and listed in The Verge 50..